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Friday, 10 July 2015

On Greece, And How George Monbiot Is Confused Yet Again

In his latest Guardian
column, the perpetually befuddled George Monbiot wants to tell us that
Greece's current problems are actually caused by an extreme version of what he
calls 'neoliberal market fundamentalism'.

"The Maastricht
treaty, establishing the European Union and the euro, was built on a lethal
delusion: a belief that the ECB could provide the only common economic governance
that monetary union required. It arose from an extreme version of market
fundamentalism: if inflation were kept low, its authors imagined, the magic of
the markets would resolve all other social and economic problems, making
politics redundant. Those sober, suited, serious people, who now pronounce
themselves the only adults in the room, turn out to be demented utopian
fantasists, votaries of a fanatical economic cult."

It's incredible how, when
you only have a hammer in your mental toolbox every problem seems like a nail.
But it's also interesting to see how to hard left extremists things slightly
less extreme yet still very economically left can seem to them to be right wing
- a bit like how warm water feels hot when your hand has just been in very cold
water.

I am completely at a loss
as to how George Monbiot can think us neo-liberals - you know we who argue for
small state interference, open global trade, the celebration of national
diversity, and a drastic reduction in bureaucracy, can be to blame for the
present day big top-down interfering, globally restrictive, nationally
homogenous, stuffily bureaucratic European superstate and the problems of some
of its struggling nations.

Because George Monbiot thinks
neoliberal free markets are the cause of most of the world's ills, and because Greece is
currently going through one of those ills, he assumes that the former must be
the cause of the latter. But it just isn't so.

Let's tell things as they are - the
problem with this European superstate is that it is devoid of the open free market
qualities that many of its countries so badly need. The federal state of Europe is an overblown political project, showing not the
slightest reason to think that monetary unity could make it a successful
economic project. The Greek situation shows the result of numerous poor
decisions, but also it shows the danger of a fanciful idea of a European
superstate with a single currency. I wouldn't be surprised if the EU breaks
down in the future - but until then, a few comments about Greece as
things stand.

The Greek economy gave indications
of going this way as far back as the 80s - in recent times it has been a
country that doesn't focus on market-based wealth creation but more on wealth
extraction through top down management. It's a great example of the failure of
leftist economics - the focus on other people's money rather than small
government and economic growth. A country's ability to generate growth is
roughly commensurate with its ability to allow the market to facilitate that
growth. That's why places like Greece,
Portugal and Spain struggled after the crash and why England much
less so. England has one
huge advantage too - and that is, it has London.

If Greece could
exit the Eurozone, revert back to the drachma (and a concomitant devaluation),
there could be a slow climb. In real terms Greek wages and prices would sharply
fall, and the GreekState would effectively be
locked out of capital markets for a while, but if it learned how to create
wealth it could then gradually price itself back into the global market. As
things stand currently this looks unlikely.

By printing more of the
drachma, this lowers the value of the currency in international markets, but it
also makes Greek exports more competitive. Add to that the lowering of domestic
interest rates, which then encourages domestic investment, and it can
potentially make the servicing of their debts for Greek debtors more conducive
too.

Alas, when you are locked
in a shared monetary policy with the rest of Europe,
this won't happen. The monetary policy of the European Central Bank is
Germany-friendly, not Greece-friendly. It's Hobson's choice for the Greek people
- massively increased debts, or Grexit and a depression that could last a long
while longer. The IMF, which has a questionable record of international policy,
has been loading Greece
up to the waist with debts in exchange for austerity and huge tax increases,
which only exacerbates things.

To recover in the long
term, Greece
needs an awful lot more of those things George Monbiot laments, not less of
them. What Greece needs is not going to be likely under this current European
superstate - its advocates have a lot resting on it working, and they don't
want anything to spoil what they hope will be (but evidently won't be) an
unspoiled legacy.

About Me

This is the Blog of James Knight - a keen philosophical commentator on many subjects.
My primary areas of interest are: philosophy, economics, politics, mathematics, physics, biology, chemistry, theology, psychology, history, the arts and social commentary.
I also contribute articles to the Adam Smith Institute and the Institute of Economics Affairs.
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Email:j.knight423@btinternet.com